Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.
Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.
Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.
The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]
Money for nothing! As unbelievable as this may seem, HMRC actually give contractor limited companies money for doing nothing - really.
There's something called ‘The Flat Rate Scheme (FRS)' which contractors can register for, in order to make a bit on the side - legally, and with the blessing of HMRC. Many, if not most, contractors running a limited company take advantage.
It originated from the concept of reducing paperwork and administration for the staff at HMRC. We didn't say they did it out of kindness for contractor limited companies!
The scheme makes it easier for limited companies to file a VAT return, if their turnover is less than £150,000. Instead of working out the difference between VAT charged and VAT paid, contractor limited companies just pay a flat rate.
The rate varies, and your contractor accountant will tell you exactly what rate applies to you, and ranges between 8% and 14.5%. If you're providing a consultancy service it's likely the rate will be 13.5/14.5 %.
If you invoice for a job for £2,000, you add 20% VAT to the invoice amount. However, you only pay HMRC, say, 14.5%. You pocket the balance!
There is a downside; you can't reclaim VAT on purchases unless it's a capital item over a defined limit. In most cases the limited company will make a profit.
Don't get too hung-up by the precise calculations; your contractor accountant will do all that for you. All you need to know is that you get money for nothing.
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If you are or plan to be a freelance contractor, you must get to grips with IR35. Ignore IR35 and it could cost you thousands!
It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.
Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].
Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.